Bad debt weighs on Barclays earnings

Banking group Barclays PLC on Tuesday reported strong earnings in its investment banking unit and announced the restart of dividend payments, but also warned that the bad debts weighing on its profits have not yet peaked.

Barclays, Britain's biggest bank and one of the few to rebuff a taxpayer-funded bailout, said net profit fell 29 percent in the first nine months of the year to 2.73 billion pounds ($4.55 billion), down from 3.83 billion pounds a year ago.

The decline was largely due to a 65 percent surge in impairment charges _ write-offs on the value of assets _ to 6.21 billion pounds as economies remained fragile and unemployment rose.

Finance Director Chris Lucas said the bank now expects charges for the full year to be at the lower end of its previously forecast range of 9-9.6 billion pounds

Lucas acknowledged that charges were likely to worsen again due to a seasonal uptick in the final quarter. He added that it was too early to say whether they would increase further in the first quarter of 2010, although there were some positive trends in the key U.S. employment and housing markets.

Shares in the bank, which initially rose after the trading update, were pulled lower on the uncertain outlook, dropping 2.2 percent to 335.4 pence.

Barclays has emerged from the financial crisis as one of the country's strongest banks after shunning a government bailout taken up by Royal Bank of Scotland PLC and Lloyds Banking Group PLC.

While Barclays' underlying pretax profit _ stripping out bad debt provisions and other one-off factors _ more than doubled over the nine months to 4.4 billion pounds, both RBS and Lloyds are expected to post major losses this year.

Barclays said Tuesday that its relatively firm financial state had allowed it to announce its first dividend since the crisis hit _ a one penny payout to shareholders for the second half of the year.

Lucas defended the bank's right to reward its shareholders for helping it to avoid having to rely on government bailouts.

"We acknowledge that there has been a lot of support to the banking system by taxpayers but we also have to recognise that our shareholders have supported us several times in the last year when we raised capital," he told reporters.

Lucas declined to reveal how much Barclays will pay in bonuses this year, a controversial issue following the crisis.

Barclays is free from the government imposed restrictions on payouts by RBS and Lloyds, but Lucas said that it intends to honor a recent agreement among the Group of 20 rich and developing countries to limit bonuses.

"We won't actually be looking at the quantum of bonuses until January when we know what profits for the full year are," he said. "We will comply fully with the recent G-20 rules and we will talk to all our stakeholders when it comes to judging how much we will pay."

Barclays' profits were driven by the success of its investment banking business Barclays Capital, which took over the U.S. business of Lehman Brothers just over a year ago. Income surged 32 percent in the division over the nine months, while global retail and commercial banking income rose 11 percent.

Profit before tax at the bank's British retail arm "decreased significantly," impacted by the current economic conditions.

"We have maintained strong income momentum in the third quarter, particularly in Barclays Capital and across the international activities of global retail and commercial banking, enabling us to achieve consistent profitability across the first three quarters of 2009," said Chief Executive John Varley.